X To Earn Track Research Report: Defining GameFi and Analyzing the Development Trends of Blockchain Games.

Original Title: "X To Earn Race Research Report"

Original Source: AvatarDAO

One, Introduction

When does investment behavior become emotional and collective? Usually, it is when the investment logic is weakened and meets the livelihood needs of the vast majority of people.

When most investment activities still occur in the primary and secondary markets, a miraculous door has already opened and released tremendous potential in 2021. It is called GameFi.

GameFi, with the development speed and popularity of the DeFi sector gradually slowing down, expands gaming into the financial field based on DeFi. Players from different corners of the world, with stronger demands for property rights, entertainment, and profit, gather on this brand new track built on blockchain technology. GameFi has become an investment tool for some cryptocurrency users.

At the same time, the emerging GameFi and NFT projects have become the eye-catching sectors in the cryptocurrency market. This is a carnival for cryptocurrency users, and investment institutions have participated in a large number of GameFi projects during the sector's outbreak period, with the afterglow still remaining in the market.

Currently, GameFi projects in the market can incorporate concepts such as DeFi and NFT products, catering to various investment preferences of cryptocurrency users and gamers. Moreover, blockchain games are still a relatively niche field, with a lot of room for growth compared to traditional games that have billions of players.

Therefore, this special research report will focus on the definition of GameFi, the early development history of chain games, GameFi 1.0 and 2.0 stages, and the future development trends of GameFi X.0, providing a comprehensive summary of the development process of the GameFi track.

This special research report does not require you to have a deep understanding of the GameFi industry. AvatarDAO's professional researchers have compiled the content and insights for you, taking you further into the past and present of GameFi.

二、GameFi Definition

2.1 What is GameFi

GameFi is the visualization of decentralized finance expressed through games, in other words, it is the monetization of money (finance) within games. GameFi is the concept of "gamified finance" that combines DeFi and NFT, presenting decentralized financial products in a game-like manner, gamifying the rules of DeFi, and NFT-izing game props and derivatives. The NFT properties of GameFi make all assets, props, and characters in the game unique and collectible, and combined with the attributes of chain games, players can fully own these assets in decentralized games. In a sense, GameFi breaks the convention that game assets belong only to game developers, allowing players to achieve financial gains through games. GameFi enhances the entertainment and interactivity of blockchain finance and NFT, allowing participants to earn profits through gameplay such as battles, copies, and social interactions.

2.2 GameFi operates how?

The reward forms in GameFi are diverse, including cryptocurrencies as well as in-game assets such as virtual land, avatars, weapons, clothing, and other props. Game players obtain these items through gameplay and can trade them on NFT markets for profit or exchange them for cryptocurrencies. The patterns and game economies of each GameFi project are different. Most in-game assets are NFTs in the blockchain and can be traded directly on NFT markets. In other projects, in-game assets need to be converted into NFTs before they can be sold or traded. In-game assets usually create benefits for players, allowing them to earn more rewards. Some avatars and skins in certain games only have visual effects and do not affect gameplay or rewards. Depending on the gameplay of different games, players can usually earn rewards by completing tasks, battling other players, or building monetized structures on owned land. In some games, players can pledge or lend game assets to other players and earn passive income without playing the game.

2.3 What are the types of GameFi?

2.3.1 Classification by Token Design

Single currency

Features: All economic production and consumption activities in the game are linked to the same token, making it easy to control. However, a death spiral may occur in the later stages, making it difficult to respond to extreme market conditions, such as when large holders sell off and the price plummets, and it becomes impossible to return to the original price.

Represents game: Spaceship

Focus: Design of consumption mechanism, selection of value anchoring.

Dual currency

Features: Most games adopt the form of main currency (value currency) + auxiliary currency; generally, the consumption and output of the main currency are linked to the auxiliary currency; sometimes the output of the main currency and the auxiliary currency are linked to the PVP system and PVE system respectively; usually, "diamonds" are changed to the main currency and "gold coins" are changed to the auxiliary currency; the main currency can be applied to most application scenarios in the game.

Represents games: Axie and its imitations.

Focus: The ratio of the supply of the main coin to the auxiliary coin; the design of the relationship between the consumption method of the main coin and the auxiliary coin; the ratio of consumption to output; subsequent adjustments are related to the diversification of consumption channels.

Multi-currency

Features: commonly used in resource-intensive games such as SLG and open-world games.

Represents games: farmers world; Star sharks.

Focus: The activity relationship represented by each currency, as well as the production and consumption relationship between different tokens.

2.3.2 Gamefi upstream and downstream classification

Engine: UE, Unity, Cocos, etc.

Currently, for the Gamefi industry, there is no need to develop an engine from scratch, or in other words, a Gamefi-specific engine does not have much significance.

Lightweight game development tool: mainly in the form of SDK, providing on-chain solutions for lightweight games.

Rendering: Cloud Rendering Platform

Game application chain: Ronin, Defi kingdoms, etc.

The content you provided is: "Mainly applicable to games with a large user base, high DAU, and long lifecycle."

But there are security issues with asset cross-chain and cross-chain bridge.

Game-specific chains: Immuatable X, WAX, Klaytn, etc.

WAX's operations have been very successful, with consistently high levels of active users. The top games include Alien Worlds, R-PLANET, PROSPECTORS, Kolobok Adventures, and Farmers World.

Immuatable X is constantly working with Starkware to make more attempts on the underlying layer. However, the problem is that there are still no active, large user-based gaming projects online.

Decentralized Cloud Platform:

The core is to build nodes and utilize decentralized computing power to provide computational support. Currently, decentralized cloud platforms are still in the early stages and have high development costs. The latency issue may not have been resolved yet. However, it will be a promising development direction in the future.

Decentralized Computing: Fluence, LivePeer

To some extent, it solves some of the problems of real-time computation on the chain.

Content distribution platforms: Gala, Come2Us, P12

The operational mode of content platforms differs significantly from traditional games, mainly in terms of the utility of the platform's token and the relationship between the platform and CP. Some platforms choose to use their own token as the entry and exit point for CP, meaning that players need to exchange their CP native token for the platform token before entering the game, and withdrawals also require conversion to the platform token, effectively endorsing CP tokens. Users can participate in CP investments through the exchange of platform tokens and CP tokens.

Platform Token Still has an independent destruction and production mechanism, which to some extent can achieve the control ability of CP's token.

IGO Platform / Content Incubation Platform:

It is worth paying attention to whether resource-driven models will integrate with content distribution platforms to form a connected oligopoly in the future.

Gold farming guilds: YGG, MC, Guildfi, etc.

There is a very obvious regional characteristic, and there is no obvious head aggregation effect, and the business barrier is not high; it is mostly distributed in countries and regions with high population dividends but low per capita income; starting from September and October 2021, the financing of guilds has gradually increased in number; the existing problem is that the valuation logic is close to a profitable DAO, the primary valuation of "heavy assets" targets is expensive, but the secondary issuance is based on governance tokens, with weak token value capture and small secondary premium.

2.4 GameFi Development Stages

2.4.1 Chain Gaming Era

As early as 2015, the first blockchain card game "Spells of Genesis" was released, which opened the curtain of blockchain games. In 2017, NFT games represented by "CryptoKitties" combined the "financial properties" and "NFT" of blockchain with gameplay. On December 9, 2017, with more than 14,000 daily active users, it once blocked the Ethereum network due to the surge in gas fees. At that time, there was no Token economic model, only simple and simple games and graphics, and the gameplay was also weak, but NFT assets began to appear. Since then, more and more chain games have appeared, and the game content has become more diversified, opening the era of chain games. In the era of chain games, NFTs and nurturing games with innovative gameplay are the main ones on the market, and the gameplay is not strong, but it opens up the market for chain games. The continuous innovation of Crypto native projects has also caused chaos in the market. At the same time, there were widespread game fund scams, which formed a false market by violently promoting, and harvested profits from it.

2.4.2 Gamefi 1.0

From 2019 to 2020, GameFi was first proposed, and NFT assets occupied an important position. At the same time, the graphics and gameplay of games have been improved. GameFi has changed the game economy model from closed monopoly to open market. Blockchain has given chain games open trading protocols and asset issuance protocols, forming a game economy composed of countless games, greatly increasing the depth of the market. Especially with the integration of NFTs, game players can not only obtain the application value of the game, but also obtain financial value.

However, GameFi 1.0 also faces many problems, such as new players needing to purchase in-game items or assets before being able to play the game. Although they can earn it back from the game, as the circulation of tokens within the game increases, if the gameplay is poor, not durable, or the economic model is unstable, the token value will decline, making it difficult for players to recoup their investment. In addition, most GameFi 1.0 projects require a constant influx of new players to maintain, but the 1.0 phase of blockchain games are mostly single-scene, NFT props, which cannot attract new players. GameFi 1.0 phase: end games and mobile games with Play To Earn and NFT as the main highlights and attributes. These blockchain games have certain game attributes, but compared to traditional games, they have insufficient playability, shorter development difficulty and cycle, and focus more on asset value rather than gameplay. Due to their short development cycle, many small games with varying quality quickly occupy the market. Increasing the application scenarios to extend the lifecycle and sustainable revenue model of blockchain games is the main goal of GameFi 2.0.

2.4.3 Gamefi 2.0

GameFi 2.0 does not yet have a unified definition, but in terms of thinking and content, games will have higher playability and involve metaverse scenes, making it a true bridge between the real world and the metaverse, enhancing player participation. As the entrance to the metaverse economy flow, the scene design of GameFi 2.0 will be more suitable for the combination of metaverse scenes, NFT assets, DAO, and DeFi, which is different from the application scenarios that are more inclined to DeFi in the 1.0 era. GameFi 2.0, like standing on the shoulders of the metaverse, perfectly solves the problems faced by GameFi 1.0 such as lifecycle/sustainability. If the game itself encounters problems with financial mechanisms, DAO also plays a very important role. They need to maintain the stability of tokens on the secondary market through their treasury or repurchase tokens from the market through bond mechanisms to maintain healthy liquidity.

GameFi 2.0 will solve the problem of a single game economy and avoid cycling within a single game based on the previous stage. At the same time, higher quality game products that are also independent game teams based on blockchain began development almost simultaneously. However, compared to the previous stage, more 3A big factory teams and members have joined, and the overall game quality has greatly improved. A small number of traditional game players with a curiosity mindset are attracted to the relatively high-quality games and join the player community of chain games. Chain games gradually enter the public's view, and GameFi will become a normal attribute of games.

2.4.4 Gamefi X.0

According to the current development of GameFi, GameFi at the X.0 stage will attempt to integrate with the metaverse. This stage is an important attempt for humans to move from reality to virtual, and games happen to be the best tool to introduce users to the metaverse. The metaverse can give GameFi many unexpected abilities. First of all, GameFi can achieve interoperability in the metaverse. In other words, all games can be linked together, which means that different characters and props can appear in other game worlds.

For example, the hero skins in "League of Legends" can be applied to the heroes in "King of Glory". Secondly, after the metaverse achieves interoperability, the liquidity problem of GameFi will also be solved. At that time, players do not need to spend money to buy new characters and props before playing a new game. By using existing NFT assets, players can easily participate in a brand new game. With the development of the metaverse, universal NFTs will emerge. With these universal NFTs, players will be able to purchase and play most games in the metaverse. This means that GameFi can immediately obtain initial liquidity when it is launched. If the game is of high quality, the liquidity problem will also be solved in the future. Therefore, more high-quality GameFi projects will appear in the metaverse world, and more liquidity will also flow into the metaverse, forming a virtuous circle.

Three, Chain Game Era

3.1 What is Chain Gaming?

Chain game refers to game products built on blockchain technology. The biggest difference between it and traditional games is the decentralized nature of blockchain, which naturally gives players the right to own their assets. Therefore, the assets of players in chain games exist as personal assets. Compared to GameFi, chain games have a wider scope, which means that any game product that has completed data on the chain can be called a chain game.

In addition, another interpretation of the era of chain games is governance Token + games. By depositing stable coins or mainstream coins, players can purchase characters or buildings and obtain governance Tokens for the project within a certain period of time, thus making a profit. This is similar to mining behavior, but it has a complex membership system, rebate conditions, and a high profit space, which provides strong driving force for attracting new players.

3.2 What are the types of blockchain games?

The era of blockchain games is an early exploration of combining blockchain with games. In this era, blockchain games are mainly represented by dApps and gambling games. The game attributes of blockchain games are relatively weak, mainly consisting of four types: card games (Spells of Genesis), lottery games (Fomo3D), nurturing games (CryptoKitties), and construction games (巨商).

3.3 Technical Solution and Economic Model Introduction

3.3.1 Economic Model

CryptoKitties is an early work that combines NFTs and games. Initially, 50,000 encrypted cat NFTs, also known as first-generation cats, were issued through smart contracts, each with different attributes. The core gameplay of CryptoKitties is hatching. By hatching two NFTs, a brand new NFT can be generated, which inherits some of the original NFT's features and randomly generates new ones. The developer of CryptoKitties mainly profits by charging players fees for interacting with the game, while players can circulate their NFTs in the market through hatching, leasing, and other functions to achieve profits. The economic model of CryptoKitties is not complicated, but it fully utilizes the underlying characteristics of blockchain.

Fomo3D is a gambling game platform built using blockchain technology in the early days. Similar to CryptoKitties, the developer mainly profits by charging fees.

Spells of Genesis is more game-oriented compared to the aforementioned games. Its economic model is similar to WEB2 card games, but it uses Tokens for economic circulation in the game. Due to its emphasis on gameplay, Spells of Genesis has a more enduring vitality compared to other games of this type.

Another alternative project of the same era - "Jushang". Its economic model is to deposit ETH and withdraw governance token EGT. "Jushang" adopts a platform governance token EGT single token governance model. Players consume EGT in the game to build buildings and generate continuous income. The secondary market boosts the governance token price through market making, providing continuous confidence for participants to buy and increase their positions. Under this economic model, income generation depends on the surplus between external capital inflows and internal release. If the external capital inflow continues to be less than the internal income, a spiral downward trend may occur. "Jushang" is essentially a Ponzi scheme project presented in the form of a game. Therefore, there is no such thing as "economic balance" for the economic model of such projects. In reality, later investors are paying for earlier investors, which is a blatant harvesting.

3.3.2 Technical Solution

Regarding the technical solutions and economic models for gamefi, the general idea is to modify the game itself internally, expand and extend its external value, and transform irreconcilable conflicts between different interest groups, in order to prolong the lifespan of the gaming chain and avoid pyramid schemes. In the first half of this year, the total financing scale of the gaming industry reached over 12 billion yuan. In 2022, there will be thousands of games on the market, and most of the gaming chains are affected by the volatility of the cryptocurrency market. They are trying to avoid the impact of the market environment on gaming chain projects by delaying the issuance of coins and the launch of games. Below is a detailed analysis.

Transformation of Playability and Economics:

In terms of playability:

Improving the quality of games and producing high-quality games is more attractive to players compared to poorly made games. There is not much discussion here.

Scene diversification, increase the difficulty of game content tasks, improve the fun, satisfy the sense of achievement and satisfaction of game players, and to some extent differentiate the treatment of free players and paying players, increasing the demand for free players to pay.

Cultivating user habits in games, such as taking incentive measures, sign-in benefits, and other behaviors. Treat free and paid players equally. Just like the behavior of stealing vegetables in QQ Farm back in the day, some people set their alarm clocks at 3 am to steal vegetables. The goal is to increase player stickiness, retention, and daily activity. Keep customers as engaged as possible.

In terms of economy:

Open the free mode: This approach has several benefits. On the one hand, it can attract more players, expand the player base, and make the game more resilient and scalable. On the other hand, it reduces the threshold and allows players to enter and experience the game. Often, free is the most expensive, attracting players to enter and becoming paying users during the game process.

The boundary between free players and paying players; the free mode is a way to expand the number of players, and the number of players to some extent can expand the gameplay and various scene tasks of the game. For free players, it is for entertainment, and for paying players, it is for consumption. At the same time, it is necessary to avoid free players participating in the internal economy of the game, so as not to destroy the economic model of the game. In the game, free players can let paying players pay for some time-consuming and laborious game tasks, so that there is a cooperative and mutually beneficial relationship between free players and paying players, and at the same time, a channel is opened for free players to transform into paying players.

Economic Model Optimization: Good Token

The economic model has significant implications for extending the lifespan of games. This includes the use of various tokens, token allocation ratios and unlocking times, supply and demand balance, token utility, and incentive measures such as staking.

Continuation of External Value and External Approach

Scene Reality: Linking games and reality together, such as the previous stepN game, skipping game, singing game, treasure hunting game, etc. Connect games with the real world, making games not just games. Integrate daily life into the game, where everything can be a game. Realizing the value of games in reality, for example, free players in the game can receive real-world rewards such as Starbucks coffee points by completing tasks.

Product attribute upgrade: Let the single product attribute of the game upgrade to social attributes. Human social needs are a big demand that accompanies people throughout their lives. Social activities in the game, such as guilds and team matches. Social activities outside the game, such as the game case mentioned earlier, where many exchanges and greetings in QQ Farm game are "Did you steal vegetables today?" For example, in King of Glory, a few people gather at a location to play together. This further enhances the value of using the game.

Expanding the Metaverse: gamefi, as a part of the Metaverse, has more playability with the advancement of VR/AR infrastructure and the diversification of usage scenarios.

Transformation of Contradictions

The distribution of benefits for investment institutions, project teams, players (free players and paying players, new users and old users), and others.

Profit distribution balance between investment institutions and project parties: Token's distribution is more reasonable, and the proportion cannot be too high, which will harm the investment enthusiasm of players. At the same time, there are multiple ways to realize the value and profit. For example, to some extent, the profit of investment institutions can be realized through the game carrier, such as embedding investment institutions' advertising behavior in the game.

The game between project teams and players: In the previous model, players achieved breakeven or profits by constantly mining, providing liquidity, and selling, regardless of the price of the Token. They would sell as soon as they mined, trying to maximize profits, resulting in significant selling pressure. The relationship between players and project teams was like an irreconcilable contradiction. By moderately transforming this contradiction, players can compete with each other. What player A loses is what player B gains, allowing the Token to have more utility and exchange value.

Player role transformation: As mentioned earlier, it is a transformation channel from free players to paying players, allowing new players to enter the game. The continuous operation of the game requires fresh blood. The cost threshold for players to change their game roles is lowered. The national treasury uses tax incentives to encourage free and new users.

3.4 Market Performance

In 2022, with measures such as the Fed's interest rate hikes and balance sheet reduction to deal with inflation, the US dollar index continued to strengthen, leading to a lack of liquidity in the cryptocurrency market. This has caused the entire market to be in a bearish state, pouring cold water on the chain game. The following chart shows the changes in Gamefi market value and BTC market value. It is not difficult to see that as the market deteriorates, the chain game trend has been declining.

3.4.1 Size and Financing of the Chain Game Market:

Under the environment of the encryption market, financing in various tracks has become extremely difficult. In 2021, the financing amount of chain games accounted for 8.45% of the market, and it increased to 11.89% in 2022. Thanks to the explosion of the metaverse concept, the chain games indirectly drove part of the market and played an important role in the metaverse. Up to now, there are more than 1400 chain games on the market. According to incomplete statistics, the financing amount of chain games in 2021 is 1.4 billion US dollars, and the amount in 2020 is 1.36 billion US dollars. It is expected that the scale will soon exceed that of 2021, including the fourth quarter. Chain games that have obtained financing on the market have delayed their plans to varying degrees, pushing the game release to the fourth quarter of 2022 or Q1 of 2023. This can avoid the adverse effects brought by the sluggish environment of the encryption market and provide more time to develop and optimize the game and improve the economic model.

3.4.2 Changes brought to the encryption market and the attitude of investment institutions:

The emergence of blockchain games has made the gameplay of the cryptocurrency market more interesting, expanding the investment channels and directions for investors. It even brings more funds into the sluggish market, just like how DEFI brought traffic and funds to the cryptocurrency market before, making the cryptocurrency market more active. In the process of continuous development of blockchain games, it is obvious that it brings benefits to the NFT market. Equity-based NFTs are blockchain game assets and also the source of funds for blockchain game developers to develop games, adding content to the NFT market. At the same time, blockchain games are the entrance to the metaverse, and a large number of game users play a role in promoting the development of the metaverse in the future. The development of the metaverse cannot be separated from the support of blockchain games, and the two complement each other.

Below the icons show the enthusiasm of institutions for investing in blockchain games, especially the favor of animocabrands institution for blockchain games, with investment in up to 56 blockchain games. Despite the declining number of active players and the scarcity of high-quality blockchain games, they are still sought after by players and institutions, and we look forward to the emergence of a phenomenal blockchain game. With the influx of funds, traffic, players, and institutions, the market will rebound and high-quality blockchain games will emerge.

3.5 Summary

In the era of blockchain games, the development of P2E mode in blockchain games is flourishing, but P2E blockchain games that can withstand the test of time are still few. With the bearish trend in the cryptocurrency market, the current blockchain game market is sluggish, but the concept of blockchain games has become more popular with the development of time, and more funds and players are participating in the exploration of blockchain games. The concept and mode of blockchain games will also become more closely related to players and the market, and will inevitably become an important part of the cryptocurrency world in the future.

Four, GameFi 1.0

4.1 What is GameFi 1.0?

Currently, there is no accurate definition for what GameFi 1.0 is. The general consensus is that the characteristics of the GameFi 1.0 era are DeFi disguised as games. Compared to traditional games, the development of blockchain games, which has only been a few years, is still relatively immature. Most blockchain games exhibit some P2E (Play to Earn) features: lack of playability, and most players play the game with the purpose of earning. The P2E model, as the new traffic favorite in this round of blockchain game explosion, seems to have become a standard in the blockchain game market, attracting capital and giants to compete for it. Although the high returns of playing and earning mode have a fan effect, overall, the playability of these blockchain games is still not comparable to traditional games, and "profitability" is still the main driving force for development. In summary, the gaming experience is more like "working on a construction site", and GameFi 1.0 lacks overall sustainable development momentum and ecological derivatives, like a huge fund game.

4.2 GameFi 1.0 types?

Although GameFi 1.0 lacks playability, it is undeniable that blockchain games absorb the essence of traditional games and empower them with unique advantages. At the same time, during the era of GameFi 1.0, there were also many attempts at different types of games.

Card games:

Alien World——Token ；

TLM ALCHEMY TOYS——Token；

GAT RPG battle game;

Cryptoblades——Token；

SKILL Pixel Adventure Game:

Crusaders Of Crypto——Token；

Crusader Pet Battle Game:

My Defi Pet——Token；

DPET Radio Caca——Token；

RACA Axie Infinity——Token；

AXS operates simulation games:

Town Star——Token：GALA

4.3 Technical Solutions and Economic Model Introduction

4.3.1 Technical Solution

GameFi, as a combination of Game and Finance, how to ensure the security of user assets is a key issue. Currently, there are usually two ways to store cryptocurrency assets, one is Onchain Wallet and Offchain Wallet, which are commonly known as hot wallets and cold wallets. Offchain Wallet can be an idle electronic device with wallet software installed, such as a computer, mobile phone, USB drive, hardware wallet, etc. Offchain Wallet is a relatively secure way to store assets, which can avoid Trojan viruses and external hacker attacks. Onchain Wallet, on the contrary, is a wallet stored through networking, often in online form, and relatively convenient for accessing assets. However, it has higher risks and is prone to hacker attacks.

Project parties in the GameFi 1.0 era often adopt the solution of Offchain Wallet with higher security to store encrypted assets. For some project parties with weaker technical capabilities, they may also use Multi-chain Asset Management System, such as Istring (Xianbing). This system provides mature and trustworthy technical personnel, who will choose to build their own centralized hot wallet system and manage private keys themselves.

4.3.2 Economic Model

The core of the Gamefi industry is the Play-to-Earn economic model. Unlike the Free to Pay model in the traditional gaming industry, players in blockchain games can earn real money through encrypted assets. Players who participate in virtual economy construction and games can earn rewards through their own participation and then sell them in the market to obtain profits. So, what is the core economic model of chain games? Simply put, the economic model is the matching of Token supply and demand, that is, Token production and Token consumption. However, there is a major flaw in the GameFi 1.0 economic model, which is the inability to escape the "death spiral". Basic economics tells us that when supply exceeds demand, prices fall; when supply is less than demand, prices rise. The same is true for the GameFi 1.0 economic model. Only when the Token consumption matches the Token production, can the Token price remain unchanged or even rise.

Ideally, new players work hard to "level up" and become experienced players. As they become experienced players and acquire certain levels and equipment, the resources required for leveling up will increase, leading experienced players to "reinvest" and maintain the demand for tokens. As the token price rises, more people will be attracted to the game, which in turn stimulates demand and creates a positive cycle.

However, ideals are lofty while human nature is realistic, and players are not fools. Most players are here for short-term "quick money" and rarely reinvest. Instead, they focus on "mining, withdrawing, and selling" in the later stages. The majority of sales by veteran players are taken over by new players, but once the growth rate of new players slows down, demand decreases and the token price drops. A drop in token price not only triggers more "panic selling" by veteran players but also further reduces the attractiveness to new players. Eventually, it falls into a "death spiral". Here are some basic economic models: we divide all economic models into two categories: single token economic models and dual token economic models.

Single Token Economic Model

Gold standard in + currency standard out.

Mining in the DeFi industry is basically this model.

Features: Fixed entry threshold, profits fluctuate with coin price.

Judgment: High initial increase, short lifecycle. It is recommended that players focus on mining, selling, and withdrawing. Once a downward trend in price appears, sell decisively.

Forward cycles can easily generate strong FOMO emotions, but when the death spiral comes, it is also thunderous and destructive.

Gold standard in + Gold standard out.

Assuming a daily gold mining yield of 100U, and a coin price of 1U yesterday, the reward for yesterday was 100 TokenA. Today, with the coin price dropping to 0.5U, the reward for today is 200 TokenA.

During the upward trend of the coin price, the breakeven period remains stable due to the decrease in corresponding output quantity. However, during the downward trend of the coin price, the daily gold-based income earned by players remains unchanged in the short term.

Stable income, not prone to sudden ups and downs, and has a longer life cycle. Players can accumulate a portion in the early stage and sell it when the coin price is high, which may result in more objective returns. When the speed of new entrants slows down significantly, they can switch to mining and selling.

Coin-based entry + Coin-based exit

On the first day, the price of TokenA was 1:1, with a threshold of 100 TokenA. Players could enter the game by spending 100U and could earn 10 TokenA in a day. On the second day, the price of TokenA rose to 2U. Old players still earned 10 TokenA, worth 20U now, but the entry threshold for new players also increased to 200U!

Easy to experience sudden surges and drops, with a short lifespan, unless there is a large user base. It is recommended that players only invest in promising projects, while also assessing the project team's ability to continuously attract new users. If this ability is lost, it is best to exit immediately.

Typical example RACA

币本位进 + 金本位出

translates to "Currency-based input + Gold-based output" in English.

Therefore, currently there are almost no games using this mode.

This was created by a team that doesn't understand the industry. Unless this project has particularly powerful features that require the initial mode for subsequent mutations or assistance, it is not necessary to use it.

Double Token Economic Model

除了单 Token 经济模型以外，AXIE 还创新性的引用了双 Token 模型。

Apart from the single Token economic model, AXIE also innovatively uses the dual Token model.

In the world of cryptography, tokens are typically divided into two categories: the main coin and the subcoin.

The mother currency is generally related to the long-term development of the game, usually serving as the governance token in the game. The sub-currency, on the other hand, is usually designed to withstand the huge selling pressure from veteran players and serves as the economic token in the game, in an attempt to maintain the price of the mother currency or the long-term development of the game.

When classifying dual-token models, they are categorized through the minting of NFTs.

Reproductive Consumptive Type

That is, all NFTs are derived from the breeding of Genesis NFTs, and the official will not sell NFTs again. The breeding process consumes a certain amount of Tokens to mint new NFTs, which is the main means of Token consumption.

This type of game mainly observes where the throw pressure falls on the Token, and mercilessly consumes the Token, hoarding coins with less throw pressure and selling them at the right time.

Selling blind box type

U Blind Box: The U Blind Box method will bring relatively free funds to the project party and have the opportunity to create explosive products. Of course, the risk for players is also relatively higher [there is a greater possibility of the project party running away], which is also the method adopted by most domestic blockchain games.

High risk, high return, bet big with small stakes.

Mother currency blind box: It drives the price of the mother currency upwards and makes it easier for the project party to control the market. When the price of the mother currency is too high, it is not conducive for new investors to enter the market. Therefore, selling some mother currency can help the price return to normal.

Short-term speculation on cryptocurrencies may be more profitable than gold farming in games.

Subcoin Blind Box: It generates a large amount of consumption for Subcoin, which is similar to the breeding and consumption model. The project team hopes to balance the price of Subcoin from within the game and extend the life cycle of the game as much as possible, in order to develop and update more game mechanisms to promote internal circulation.

安心打金，稳稳地幸福，直到入场人数明显减少。

Translation:

Safe gold mining, steady happiness, until the number of participants decreases significantly.

4.4 Market Performance

4.4.1 GameFi 1.0 Market Performance

During the GameFi 1.0 phase, there were many popular projects, such as AXIE RACA SANDBOX, among which Axie Infinity was the most prominent one that drove the GameFi 1.0 craze. Axie is a gamefi@n that combines pet battles with NFTs.

Introduction to Star Projects

In the era of gamefi1.0, the native governance token of blockchain game Axie Infinity, AXS, skyrocketed from $3 to $156 in just 6 months. This astonishing growth has brought Axie's total market value to nearly $30 billion, making it one of the most valuable gaming companies in the world.

The numbers may seem unbelievable, but what many people really want to know is why: in the game Axie Infinity, players can breed, raise, and trade a type of digital pet called Axies, which exist in the form of NFT (non-fungible token). Players can also earn SLP tokens by battling other players and using their Axies to breed new ones, which requires consuming SLP tokens.

It is worth noting that when playing Axie Infinity for the first time, users need to first go to the Axie market to purchase at least 3 Axies pets before they can start playing the game. It is based on NFTs with different rarity and utility generated by genetic algorithms. Each Axie is an ERC20 Token with unique characteristics that affect its rarity and utility in the game. The characteristics of each Axie depend on those of its parents and are combined probabilistically according to a genetic algorithm when a new Axie is born.

The game is supported by a token system, including two practical tokens: in-game currency (LPT) and governance token (AXS). In the design of the dual-token model, the market-oriented SLP and governance-oriented AXS have clear responsibilities and coordinated cooperation, which to some extent avoids the systemic risks and rigidity of a single token system, and provides more flexible space for the ecological economic operation and management. Among them, SLP is correspondingly destroyed at a rate that generates and reproduces battles, and while maintaining supply and demand stability, it can bring long-term supply capacity to emerging growth sectors.

Overall, it is about market capitalization and the proportion of star projects (mainly Axie).

With the crazy drive of Axie, the sealing of GameFi in the entire cryptocurrency industry has been on the rise, and it has been pouring in crazily.

Data source - NFTgo

Taking the above data as an example, the entire data reached its peak value in July of 21, with Axie Infinity's 30-day cumulative trading volume exceeding $600 million, reaching $604 million, a MoM growth of 449.5%. The historical cumulative trading volume of Axie Infinity has increased to $758 million. Many projects have emerged like mushrooms after rain, with uneven levels and a dispersed market. However, from November onwards, it began to show a death spiral channel, rapidly declining.

The profitability of most GameFi 1.0 models is very obvious in the early stages, but it starts to decline as the number of players increases. Take BHB Hero as an example, its profitability was indeed strong in the early stages, but it gradually turned into a break-even point after 10 days, 2 weeks, and 3 weeks, and then went bankrupt directly. Some projects developed by large companies that have obtained financing will show a death spiral trend in the overall cycle of 3 months.

Looking back at 2021, the peak trading volume of GameFi was concentrated in early August and early November. In terms of trading volume, the first week of August and the first week of November both reached around 220 million US dollars, of which more than 90% came from Axie Infinity. Other games with high trading volumes include Alien Worlds, Sorare, Aurory, Gods Unchained, and Crypto Kitties. The trading volume of these games continued to decline after November, and as of the first week of 2022, the GameFi trading volume was around 44 million US dollars, a drop of more than 80% compared to the highest point. The trading volume of Axie Infinity was also only around 35 million US dollars, about 16% of the highest point.

4.4.2 GameFi 1.0 User Overall Performance

User Growth Data

Let's take a look at the data of the chain game market. From the following data, it can be seen that although the trading volume has dropped significantly, the active users of the chain game have been fluctuating and rising. It has risen from 470,000 at the end of July last year to 1.53 million at the beginning of January this year, and the number of active users has increased by more than three times in the past six months. Therefore, it can be seen that although the market has cooled down and the trading volume has dropped significantly, there are still new users participating in GameFi.

GameFi User Activity

Distributed data

Many blockchain games are distributed across different chains.

From this, we can see that Harmony, Ronin, and BSC are the chains with the most gaming activity.

The number of games on the BSC blockchain is the highest.

Guild for Chain Games

In GameFi1.0, there is another significant participant that cannot be ignored, which is the gaming guild.

What is a guild? In the traditional gaming world, a guild is a group of people who gather together primarily to play games, with a means of communication outside of the game such as a website, BBS, chat channels like QQ or Discord, and specific names and logos. They also have strict rules and responsibilities.

However, in the era of GameFi 1.0, the purpose of guild establishment was more about discussing how to maximize benefits and putting it into practice for the player community. In addition, guilds also provided free training and hands-on guidance for ordinary users of Web 1.0, and ultimately shared profits with players. Therefore, instead of being called a guild, many people prefer to call it a "chain game studio".

Some of the well-known guilds in the industry include YGG, which was also originally founded by Axie. Back then in the Philippines, this game was known by everyone. YGG took advantage of this trend and trained a large number of ordinary people to make money from it.

After earning a large amount of wealth through Axie, YGG participated in investing in several blockchain games and also launched their own governance token. Later, they even attracted investment from a16z.

Under the influence of YGG, more people have established their own game studios, attracting more players to create revenue.

The content you provided is:

活跃率

The translation is:

Activity rate

Here are some active events of investment institutions.

4.4.3 GameFi 1.0 Project Overall Performance

Community growth strategies and results.

Gamefi1.0 Most of the users participating in the chain games seen on the market are also players in the cryptocurrency circle, and the quality of the games varies. The game content emphasizes strategy and gaming, and the economic model is maintained for a relatively short time. Some players outside the circle even regard these types of chain games as "online gambling". This stage has also seen many high-risk speculators in GameFi.

The author believes that the GameFi track is one of the most effective ways to attract non-crypto users into the crypto field, and the development of GameFi cannot rely entirely on crypto-native players. It is crucial to attract traditional gamers to join. High-quality blockchain games with stronger gameplay and playability will become the future trend.

Media growth strategies and effectiveness.

GameFi1.0's promotion in the traditional world relies heavily on social media platforms such as Twitter, Facebook, and Youtube, as well as self-media applications. Compared to many Web1.0 projects that rely on traditional media promotion methods, GameFi1.0 is more likely to attract attention among young people, but at the same time, many middle-aged and elderly people have expressed great confusion.

For example, Radio Caca, which was endorsed by Musk's mother Maya Mask at the time, gained tremendous influence in just a few months through Twitter marketing and the forwarding of various media and social software, leading to a 1000-fold increase in its currency price within three months.

In addition, most projects are spread through viral marketing methods such as RT+Tag Fren lottery. The prizes are usually game NFTs, USDT, or White Lists for some projects. This has also attracted a lot of attention from people outside the industry.

Market value management style.

From the perspective of token prices, the market value of blockchain gaming projects in the GameFi 1.0 era have basically experienced the process of "positive spiral" and "death spiral".

For example, the chain game Radio Caca saw a nearly 1000-fold increase in its coin price in just 2-3 months, rising from a low of 0.000042106 to around 0.1215, an increase of up to 129629%. After reaching its peak market value, it quickly plummeted into a death spiral, with a drop of over 96% to date.

For example, the previously popular blockchain game Axie, although it adopted a dual token model to reduce the selling pressure of the main coin, still couldn't avoid falling into a death spiral and could only try to prolong its lifespan.

Up to now, the main currency AXS of Axie has fallen 91% from its highest point.

Project cycle situation (coin price weekly chart shows a downward trend as the cycle).

Gamefi1.0 The entire chain game market strategy is more inclined towards being fast, accurate, and ruthless. From the beginning of game development to the promotion on various media platforms, investment and financing, and then attracting most players to enter the market through revenue. With the increase in user volume, the overall intervention of the chain game guild pushed the game to a climax, and then began to spiral downward.

4.5 Summary

GameFi 1.0: Refers to blockchain games with lower playability than 4399, but with the potential to earn rewards through playing and selling. Tokens are used to earn huge economic profits in blockchain games. Most blockchain games on the market fall into this category. The core idea of this revolution is that players should own the content (in-game assets) they earn, or at least have more ownership in the digital world where they spend a lot of time and money. This creates two direct advantages:

The lifespan of in-game assets will be extended as these assets continue to exist in the player's wallet, even after the game is closed.

The interoperability and composability of assets enable them to interact with other games, applications, or blockchains. It is undeniable that the blockchain gaming industry has experienced a watershed moment - a historic shift on which future development depends.

People's views on blockchain games have changed, due to the success of games like Axie Infinity, the explosive growth of NFT secondary sales, and the widespread growth of crypto users, more specifically, the expansion of blockchain game users. In turn, this has also promoted further financing for various core infrastructure and many new games and studios in the blockchain gaming industry.

The tailwind of the metaverse has also benefited the gaming industry, which occupies a large proportion in today's online activities. For companies established in the metaverse, this may be an important area for growth and user acquisition.

Blockchain ecosystems such as Ethereum are developing at an increasingly rapid pace, but scalability challenges and user experience issues still exist. Despite this, many teams are developing solutions for users and game developers to enhance the experience of building and playing blockchain games. Although a common profit model has yet to emerge in blockchain games, there are still bright prospects for experiments around issuing NFTs, vertical markets, in-game currencies, and other cryptographic economic primitives.

Five, GameFi 2.0

5.1 What is GameFi 2.0?

I believe that the four major issues of GameFi 1.0 must be improved.

Lower the entry barrier for new users, unlike before where they had to spend money first. This approach is sure to cause speculation, which is not sustainable in the long run.

Sustainable economic model, avoiding internal fund dead loop, DAO role.

More emphasis on the intrinsic value of individuals.

除了玩家外，让不玩游戏的人也可以透过「投资」赚钱。

Translation:

In addition to players, non-gamers can also make money through "investment".

GameFi 2.0 must be built around in-game digital assets to create a new wave of long-term investable economy. Investment provides funding for early-stage capital, creates additional buying pressure for tokens, extends the game's life cycle for future development, and financially incentivizes players and game developers.

5.2 GameFI 2.0 types?

With reference to Axie's past success, GameFi 2.0 is roughly divided into three possible functions.

Related to gambling, including casinos (slot machines), card games (poker, blackjack), and eSports (NBA/MLB betting).

Related to community, including Sports Manager (Football team), Simulators (Metaverse), City Builder (Farmville), and Battle Games (MMORPG, 3A).

Related to trading, including NFTs (BAYC, NBA Top Shot), Augmented Reality (Pokemon Go), and Battle Cards (Top Trumps).

5.3 Technical Solutions and Economic Model Introduction

This article uses external (CryptoStream) and internal (StepN) examples as illustrations.

CryptoSteam

Take the crypto game publishing platform CryptoSteam founded by former Blizzard Vice President Aaron Pulkka as an example. He channels all platform revenue, including revenue from the game DeDragon, into the DAO's Vault, controlled by the protocol. When the governance token falls below the set price, it will be repurchased, and the liquidity of the governance token is repurchased from the market through this mechanism. CryptoSteam combines this model with "Play To Earn" to create a new Gamefi 2.0. In addition, CryptoSteam also uses tokens and NFTs to connect the economic models of all games. Its goal is not to share with game developers, but to make developers become managers of CryptoSteam through DAO.

StepN

Improve the offline scalability and social attributes of virtual space to achieve integration of virtual and reality. StepN enhances its sociality through several points. Firstly, good culture. Climate change is an important topic, and StepN also uses virtual shoes to respond to a low-carbon lifestyle. Secondly, inner character. It emphasizes personal conditions that cannot be satisfied in reality, but can be satisfied in the virtual world. Thirdly, PW2. By exercising and constantly giving value to users, it motivates them to exercise and creates a virtuous cycle.

In short, in addition to the game itself, it is necessary to respond to the internal needs of the human body in order to achieve a sustainable model.

5.4 Market Performance

Although GameFi has been quiet for a while, there have been a lot of financing activities in the GameFi field recently. In addition, this year A16Z, Mechanism Capital, and specialized funds have invested in the GameFi field, indicating that they are very optimistic about this track.

GameFi is a product of the game industry's transformation towards "new food capitalism", which uses a comprehensive asset-based business model to generate profits. In GameFi 1.0, due to the greatly reduced entertainment value of the incentive mechanism, players were forced to transform into ruthless "gold farming machines" driven by capital temptation even in voluntary situations; this also exacerbated the collective anxiety of player users' identity recognition in the virtual world, and games have become a mechanical operation like a work task rather than an entertainment product (or with deeper learning and social aspects).

Unlike GameFi 1.0, GameFi 2.0 games, represented by STEPN, are working on improving the offline scalability and social attributes of virtual space, as well as the interconnection between virtual and physical space. STEPN users satisfy the psychological demands of dual identity anxiety in the virtual and physical worlds, which has long been ignored in the context of GameFi 1.0, through the triple play of spiritual value, sports philosophy, and social attributes. In this way, the consensus culture and landing construction are completed. STEPN attempts to solve the contradiction between traditional GameFi entertainment and investment. GameFi 1.0, which prioritizes investment returns, has long had the following problems:

The Ponzi schemes in the cryptocurrency industry generally lack sustainable economic models for long-term operation. After experiencing peak values in both NFT value and user numbers, a long-term slow decline is inevitable.

The core value of gaming experience and innovation, cultural construction, and community have been neglected, becoming a short-term profit speculation tool for economic benefits, causing a value fracture with the physical world. Through marketing of life attitude, STEPN provides users with the possibility of obtaining a sense of satisfaction by actually exercising in the real world, rather than passively obtaining pleasure through consumption - earning money and exercising, achieving both economic and spiritual satisfaction. This also suggests that GameFi 2.0 focuses not only on game richness and economic feedback, but also on the establishment of community value and emotion.

X to earn, core value X

Community-based: Long-term multi-level consumption.

GameFi's long-term and stable operation relies on a multi-level consumption model based on a positive community culture, rather than simply providing an investment product as a short-term speculative tool.

Value Projection: The anxiety of a common cultural background and the spiritual needs of bodily awareness.

GameFi 2.0 accurately turns its focus to the inner self of individuals - a post-modern anxiety with a common cultural background, a spiritual desert. People no longer believe in a bright future, and personal states tend to be more towards emptiness and suspension. To cope with this unpredictable post-modern sense of crisis, people regard the body, the only physical proof of self-subjectivity, as the last fortress.

Creating spiritual value and higher happiness: From play-to-earn to play-with-earn.

GameFi 2.0 (letmespeak is also a good example) brings a deeper sense of achievement, which is reflected in the rich spiritual core, and this value is valuable in the physical, symbolic, web3.0, and web2.0 worlds. In the process of exercise, users actively control their bodies and create spiritual value, gain profits, and resist the sense of post-modern crisis.

Post-pandemic era: sports, low threshold, real-world value.

STEPN encourages users to earn Tokens and participate in transactions by walking, jogging, and running. This not only meets people's needs for exercise in the post-pandemic era, but also further involves users in the pursuit of health and self-discipline. The extremely low participation threshold also makes STEPN a game mechanism that is needed and easy to use by everyone.

Symbolic value, conspicuous consumption, and the externalization of class communication needs.

GameFi 2.0 has opened up a new possibility: to provide players with a sense of satisfaction that can be endlessly pursued, projected with value, and actively created in both the real world and the virtual world. It satisfies players' needs for social interaction, increasing intangible assets, and self-value affirmation.

The entire gamefi 2.0 is basically dominated by STPEN. Let's take a look at a set of data together:

User data.

This is one of the hottest weeks for the encryption industry. The number of super users who have joined SOL accounts for 10.7% of all super users, reaching a staggering 1.79 million, which is almost the same as the total number of users who have deposited money. The true strength of this project lies in the fact that 39% of high-level users have joined SOL, almost equal to the number of ordinary users at 920,000. This is an astonishing amount of data, achieving a user base of millions in just a few months. Projects always have ups and downs. According to Footprint Analytics data, the overall balance of SOL deposits and withdrawals by early users on Solana was basically balanced. However, since May 22, withdrawals have gradually exceeded deposits, indicating that users are selling more shoe NFTs. Especially since the 24th, the selling pressure of SOL, GST, and GMT has increased significantly. After the project party conducted an AMA, the data has been pulled back, but it faced selling pressure again after the announcement of the withdrawal of Chinese users on the 27th.

The trading volume of GMT and GST is also very active, both exceeding tens of thousands of transactions. Although the total trading volume fluctuates little, it can be seen from the average number of transactions per address that it has increased significantly after mid-May. Then, due to policy reasons, mainland users were cleared out, and the overall data volume plummeted, the consensus collapsed, and everyone was reflecting on selling and experiencing a run on the market. It has fallen into a death spiral of gamefi.

Reasons for StepN's Breakout

Background aspect.

StepN's team and advisors have backgrounds in blockchain, gaming, and sports. The project was one of the winners of the Solana IGNITION hackathon in October of last year and received a $5 million investment led by Sequoia and Folius Ventures in January 2021.

Meanwhile, the vice president of Adidas has also promoted StepN on social media, and its strong background has added more support to it.

Open new mode.

GameFi's play-to-earn model is currently in a weak state, and the market is lacking a standout project. As users become more savvy, there is a lack of innovative projects that can break away from homogeneous gameplay and impress users.

Following the global trend closely.

The improvement of global health awareness has led people to pay more attention to healthy living. Running, as the simplest and most accessible exercise, can be easily picked up by anyone.

Not only about making money.

Playing games can bring users instant pleasure, but in the long run, it can also lead to a sense of guilt. Although P2E allows users to earn tokens while playing games, the uncertainty of the coin price may eventually cause users to waste time enduring boring games and losing money on the initial NFT cost.

If you replace X with something more meaningful than play, and shift the value of the project from earning to X, users will not be too concerned about whether they have earned or not, and will no longer focus solely on the fluctuation of the coin price to decide whether to stay or leave.

StepN provides users with a value beyond profit, whether it is a healthy body, a positive mindset, or the opportunity to make friends with like-minded individuals who share a passion for sports.

Strengthen anti-cheating measures and reject guilds.

StepN has strict anti-cheating mechanisms to prevent speculative behavior from disrupting the balance within the project. Although guilds can bring a considerable number of users, they can also cause unfair competition for individual users. At the same time, guilds usually accelerate the death spiral of the project, causing the supply and demand of tokens to spiral out of control.

StepN's breakout fusion involves many factors, with some reasons related to user positioning. Although there are inevitably speculative users seeking profit, it has also attracted users seeking other values (such as health). However, releasing risks early on is easier for the project to adjust, and a large number of profit-seeking users will only accelerate the project's death.

5.5 Summary

Compared to GameFi 1.0, which emphasizes external asset value, GameFi 2.0 harvests a deeper level of value that is reflected in its spiritual core. In other words, instead of tempting players to invest with external value, the focus should be on internal value, which drives emotional investment from players and creates a sustainable economic model.

Six, Development Trends of GameFi X.0

6.1 Diversified X to Earn

X to Earn, in a broad context, can refer to any behavior that earns income in Web3. However, the X to Earn we mentioned includes: Play to earn (represented by projects such as Axie Infinity), Move to earn (represented by projects such as StepN), Learn to earn, Drive to earn, Write to earn, and more innovative and diverse forms, such as Sing to Earn, Sleep to Earn, Eat to Earn, Meditate to Earn, etc. After the play-to-earn model of Axie and the move-to-earn model of StepN became popular, the X model gradually evolved into a "everything can make money" state, and X to Earn has a broader narrative space compared to Play to Earn.

How does the x to earn model innovate? To break through and enter the next stage, the x to earn model must consider the following elements based on the project stage: breakthroughs and innovations that the project party needs to make.

x to earn Radical expansion in the early stages of the project is worth trying. The way of radical expansion may be to provide a shorter payback period, or even burn money to create enough gimmicks to attract users to engage in x behavior. For example, PayPal offered users a $5 reward in the early days of its startup, ensuring exponential growth of over 2% per day.

During the development stages of a project, there will inevitably be a stage of market value contraction and participant screening. However, this does not equate to a "death spiral". Although the price of Axie Infinity's token has dropped by over 90%, new users are still emerging and the project team is persevering in building even during the bear market. Therefore, the fair value of this game continues to accumulate/discover.

Regardless of which development model PAKA Labs mentions in the article - "feeding" with "kryptonite", "feeding" with "diligence", clock-in mode, "feeding" with "points" on the internet, or traffic monetization, x to earn needs to find a sustainable source of income to achieve the second growth curve. From a macro perspective, the project should build an ecosystem around x, which may include sponsors, advertisers, traders, collectors, loyal fans, gamers, gold farmers, and so on. Through the production and exchange of multiple parties within the ecosystem, a closed economic system can be realized.

On the other hand, we are seeing some Web2 companies using "x to earn" as a new business model and marketing concept, opening the door to Web3 exploration. Because "x to earn" interestingly connects off-chain behavior with on-chain economic models, it forms a bridge between Web2/Web3. We find that traditional Web2 companies are making bold attempts to use their existing "x" advantages and attract users through the "x to earn" model, promoting their own product iterations. At its core, "x to earn" is based on the project narrative, the starting point of the project's cold start, and the solution to real human needs. "Earn" is the universal selling point that can attract users to enter the Web3 ecosystem. A benign profit model and stable economic cycle are necessary conditions for the long-term development of the project. "Earn" should not be the goal of "x"; instead, "x" and "earn" should be integrated. In other words, only when users can feel the fun and attraction in the "x" mode, can "earn" add value and provide vitality for the long-term operation of the project.

6.2 Technical Solutions and Economic Model Analysis

It is foreseeable that gamefi is the closest application to "entity" in the crypto world. Judging from the proportion of gamefi's market value to the total market value, there is still room for growth in its market value. At the same time, the application layer is still in the early exploration stage, and there is still uncertainty about the future development direction of gamefi:

Pay attention to the progress of Defi direction.

Introduce more refined designs of DeFi's in-game economic models. Also pay attention to innovative DeFi projects.

Utilizing business handling fee income as staking rewards.

Using partial governance Token for staking rewards.

The application of Ve model in game economy model

Extension of "Follow X to earn"

In the future, more and more second and third-tier web2 teams, and even top teams, will enter the scene of rapid learning token design, and make more explorations in the development and numerical design of token design.

More Empowerment of NFTs

The value of in-game NFTs is currently still limited to the role of "shovels", which can provide social attributes and display functions.

Connect with other social platforms to showcase achievement systems;

NFT serves as a proof of participation for CPs, allowing them to gain more rights and value on content platforms.NFT PASS Card: The admission threshold for the community.

Random exploration or completion of game content rewards: Easter eggs are rewarded as NFTs and displayed.

Additionally, NFTs themselves are programmable, combinable, and playable. NFT holders can engage in a small game without entering the larger game, and through interaction and voting among NFT holders, they can influence the direction of the entire project.

Gamefi's Economic Model

In the GameFi industry, there are two types of tokens commonly used in tokenomics: single-token and multi-token models.

Single Token: All economic output and consumption activities within the game are linked to the same token, making it easy to regulate. However, it may lead to a death spiral in the later stages, making it difficult to respond to extreme market conditions, such as when large holders sell off and the price plummets, and cannot return to its original price after the crash.

Multi-token: Multi-token systems typically divide game coins into in-game currency and governance coins. In-game currency is the main reward for daily tasks, PvE battles, and other basic player behaviors, and plays a role in the game economy cycle, with unlimited issuance accounts; governance coins are used to incentivize players to make long-term commitments to community governance rights and higher token values in challenging tasks such as PvP battles.

Multi-token systems reduce the impact of the secondary market on games and increase the stability of in-game economic systems by integrating resources for self-adjustment. Although multi-tokens have a relatively high cognitive threshold for players compared to single tokens, they have the following advantages:

First of all, the economic mechanism is easy to adjust during game operation. In games with multiple tokens, the value of a single currency can only affect specific resources, which may affect the player's single-line income in tasks, but will not cause system crashes. Second, the currency exchange rate is adjustable. If a currency experiences an economic downturn, the designer can promote it through in-game operations to enhance user stickiness or increase consumption, which will increase the value of other currencies and increase player confidence, thereby continuing the game and betting.

One lesson learned from traditional games is that games with economic balance can continue to attract players for a long time and make early game assets more valuable due to scarcity. Thanks to various financial and technological mechanisms, GameFi projects now have more complex resource systems and better self-regulation. Although price fluctuations in the secondary market are inevitable, the team is more capable of maintaining economic balance within the game, so the game will be able to retain players with engaging gameplay and early asset investments.

Although some traditional players resist the financialization of games, games and investments can be organically combined through game mechanisms. A long-term stable game economy can eliminate speculators and only leave investors who appreciate the game and players who contribute to the community. Games with adaptive mechanisms can improve the financial situation of certain people through strategy and competition, and also allow investors to benefit from asset liquidity and appreciation.

Traditional games have powerful internal economic regulation mechanisms, while encrypted currencies on the blockchain have infrastructure to maintain price stability. The combination of the two can create countless new examples. However, GameFi is still in its early stages, with many players exploring the boundaries of traditional themes. They are looking for GameFi projects with more sound mechanisms to activate and enrich the market. In return, blockchain and encrypted currencies will restore asset ownership and the additional labor value of players, ultimately achieving a win-win situation.

6.3 Entry of Game Developers into Web3

6.3.1 Overview of GameFi Involvement by Gaming Companies

The advantages of game developers:

With a complete game production team, the advantages of art and development technology are obvious;

Develop, operate, and sell multiple game works;

Traditional game sales channels have abundant upstream and downstream resources and flexible settlement methods;

The team size configuration is diverse, ranging from small and exquisite to large and comprehensive.

The disadvantage of game publishers:

Insufficient understanding of the Web3 industry as a whole;

Lack of experience in Web3 industry project operation and control.

Businesses involved in Web3 often operate through business units or innovation project teams, with insufficient support.

The team leader has insufficient understanding of Web3.

6.3.2 Why do game developers choose GameFi?

The reason why traditional games have a long lifecycle:

Krypton gold players find pleasure in fun games and are willing to pay for card draws and game currency.The project team keeps a portion of the funds received from paying players in order to continue developing the game and make it more enjoyable.

More fun games attract more ordinary players.

More and more ordinary players are giving paying players more excitement to continue stimulating them to spend money.

If game manufacturers make reasonable use of the above points, it will make the life of blockchain games longer-lasting.

6.3.3 Integration of Pass-through Business Model and GameFi

The business model of traditional games can be roughly understood as three types: in-app purchases, recharges, and one-time purchases. Through channels to buy traffic to achieve conversion, increase DAU (Daily Active User) and daily revenue. Its essence is still to attract users to play games and stimulate users to spend money in fixed stages. With the change of game terminals, the PC side has transitioned to the mobile side, and the business strategy has also changed due to changes in terminals and audiences.

After three rounds of evolution in the GameFi industry, Earn has become a must-have option for Web3 users to participate in games, and the in-app purchase model and business model in traditional gaming have strong connections with GameFi.

First of all, considering the internal circular economy system of the GameFi project, an economic model is needed to constrain the release of Tokens. The value regulation of transmission games has been polished by multiple crowds and projects, forming a set of inherent control logic.

Secondly, the business model of in-app purchases fully considers the basic psychology of users playing games for free. It switches the user's entertainment pleasure to the value pleasure of P2E.

6.3.4 What are the obstacles to entering the GameFi track?

Currently, game developers can achieve the following points, but they are still difficult to implement in blockchain games:

Escape from reality: You can achieve a second life and have more control over your life, such as everyone's love for reading time-travel novels.

Sense of achievement bursting: as long as you have enough liver or enough money to spend, you can become a master or a leader. In the game, waving a big flag and calling out can make the mountains collapse, and the younger brothers kneel and worship, while the younger sisters admire. Opponents in the game shed tears.

Gambling is in line with human nature: when luck is on your side in card draws, when a weaker team defeats a stronger one, dopamine is released in large amounts, resulting in a direct and satisfying experience in the brain.

Social attribute: If you play a game for a long time, the brothers in the alliance become real brothers who chat and hang out on WeChat, and emotional communication is established.

If you can overcome the above pain points, then it will no longer be difficult for players to spend money to invite others to join the game, and the number of users will increase rapidly, which is currently difficult to achieve in blockchain games.

6.3.5 How can game developers break through?

The team leader needs to personally experience Web3 and feel the essence of the industry.

"Starting with the end in mind" to approach the upcoming team transformation and business development;

Hiring an experienced Web3 team to assist with project operations;

Set aside the sense of honor gained from the gaming industry and "get involved in the game".

6.4 Gaming's Return

6.4.1 Game Play

Fun gameplay is definitely the top priority for online games, and it should be easy to pick up and play, even for beginners.

Game fairness and security: Try to choose games with main content that is not easy to cheat (i.e. not easily exploited by scripts) and with guaranteed safety of player funds and assets.

In the game, design a path that is similar to traditional games, download the game, register an account, and start playing. Don't worry about wallets or deposits for now, Web2 players can start playing first.

The mechanism design should also be reasonable, so that even new players can invest their own energy without falling too far behind old players.

6.4.2 Interactivity

Currently, most DeFi games include role-playing, virtual space, cultivation and combat, and multiplayer building. Compared to the previous liquidity mining model, the Gaming era has stronger user interaction, experience, and immersion, as well as higher entertainment value. Identity socialization, AR, brand integration, and other methods provide a solid foundation for further effective interaction.

6.4.3 Ecologization

The rise of the GameFi platform project ecosystem does not come from piecing together individual projects one by one. It requires a platform-based approach to consider whether all stakeholders in the ecosystem can truly participate and profit.

Considering a single project from an ecological perspective, both expectations and practices will be elevated by several levels, and traditional upstream and downstream service providers in the gaming industry will be bundled into the entire Web3 market.

6.5 Risk and Opportunity

6.5.1 Mechanism Risk

Currently, the lifespan of chain games is generally short. As the parameters such as coin price and entry threshold spiral upwards, the speed at which new players enter the game may not keep up with the speed at which old players produce, resulting in a turning point and even ultimately leading to a death spiral.

Most traditional gamers play games just for the sake of playing, while most blockchain gamers play solely for the purpose of earning in-game currency. This difference in nature has led to the phenomenon of pay-to-win in traditional gaming and the practice of only selling in-game currency in blockchain gaming.

The reason why there is no need to spend money in blockchain games may be that the games do not stimulate players' desire to spend money. The games may not be fun enough to satisfy users' needs for excitement.

6.5.2 Regulatory Risk

Risks related to gambling crimes. In the past, many games used game props, game coins, and legal currencies (such as RMB and USD) for free exchange, essentially packaging gambling activities as online games. Therefore, in order to crack down on gambling activities in the online gaming industry, relevant departments have issued regulations prohibiting game platforms from providing channels for exchanging game coins for legal currencies.

Suspected risks of illegal fundraising, pyramid schemes, and money laundering 

Illegal Fundraising: Taking illegal absorption of public deposits as an example, in order to constitute this crime, it is necessary to meet four requirements: illegality, publicity, sociality, and inducement. Generally, blockchain gaming companies will not obtain the qualification to absorb deposits illegally. Games are naturally a product that needs to be publicly promoted to the masses. In other words, among the four requirements of illegality, publicity, sociality, and inducement, the blockchain gaming platform has naturally hit three of them. The key lies in whether it promises to guarantee principal and interest.

Pyramid selling: For a game to run and develop for a long time, it must have a certain number of players participating. Otherwise, no matter how well-designed or beautifully crafted the game is, it is just a string of code without players. To obtain a large user base, promotion and advertising are necessary. However, using improper promotion and advertising methods may also be involved in pyramid selling crimes.

Money laundering: For example, in a blockchain game, the set rule is that players use digital currencies such as Ethereum and Bitcoin to deposit money, but the digital currency earned through the game is USDT. There are two aspects of money laundering risks here, which the author categorizes as "active" money laundering and "passive" money laundering. "Active" money laundering refers to the platform absorbing players' Ethereum and Bitcoin and transferring USDT with "stolen money" attributes to game players in order to launder the stolen money. "Passive" money laundering refers to game players using digital currencies with stolen money attributes to deposit money and using game rules to convert these "stolen coins" into clean USDT. The game platform becomes a part of the money laundering activity without knowing it, and objectively provides assistance to the money laundering activity, which may be recognized by judicial authorities as an accomplice to money laundering crimes.

References

4.3.2: "The Great Revelation of Chain Game Economic Models" - W Labs Melon Field Laboratory (mirror.xyz)

6.1: https://blog.dodoex.io/x-to-earn-current-situation-and-breakthrough-strategies-4ba23985850c

6.2: https://racingtime.medium.com/redemption-of-gamefi-the-design-of-in-game-economy-mechanism-39e500afeef3

6.2：https://www.panewslab.com/zh/articledetails/4rio09zh.html

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